Litigating California Wage & Hour and Labor Code Class Actions

stores” by providing them a portion of their store profits that “Ralphs would otherwise be
entitled to retain itself.” 69
Ralphs represents a victory for employers because its holding permits a business to have a
bonus plan that distributes sums based on the level of the company’s net profits. Although
Ralphs addressed and reconciled a significant question of California wage law, it remains
to be seen how the lower courts will treat bonus plans that depart from the standard netprofit-based
bonus system at issue in Ralphs.
C. Unlawful Commission Chargebacks
1. Nature of the Violation
Another Labor Code class action that was once common, but has become less so, is
one alleging that commission chargebacks constitute illegal deductions. Companies
often employ commission salespeople who receive a commission immediately upon
the completion of a sale, subject to the occurrence of some future event. For
example, a salesperson might sell a product on day one and immediately receive a
commission that is subject to “chargeback” if the customer fails to pay within sixty
days.
Plaintiffs attack chargebacks primarily by citing Labor Code Section 221, which
makes it unlawful for an employer to “collect or receive from an employee any part of
wages theretofore paid” to the employee. In addition, where the chargeback occurs
for reasons beyond the control of the sales employee (such as the customer’s failure
to pay for the item), plaintiffs have invoked Section 8 of the Wage Orders and the
Kerr’s Catering line of cases for the argument that a chargeback constitutes an
“unlawful deduction” from an employee’s wage not attributable to the employee’s
willful misconduct.
In particular, plaintiffs have attempted to derive a “no-chargebacks” rule from Hudgins
v. Neiman Marcus, 70 a case involving commission chargebacks for retail sales
employees on certain returns of merchandise. Plaintiffs read the case as generally
prohibiting chargebacks where the employee was not at fault for the return.
Defendants respond that the case’s holding is more limited, addressing only the
situation where Neiman Marcus held its employees collectively responsible for the
return of any item that could not be traced back to the particular salesperson who
sold it. The court never suggested that charging back the commission was unlawful
where the sale can, in fact, be traced back to the person who received the
69
70
Id. at 228.
34 Cal. App. 4th at 1109.
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